Maintaining clear communication with a standardized process that works for both parties is essential for efficiency in the draw process. Utilizing and tracking a budget in a standardized Draw Summary format makes the draw request and history clear to the lender, and it keeps everyone on the same page about how the budget is progressing in a draw. Additionally, with the help of tools like Rabbet, Draw Summary tracking can make the draw review processes faster and less risky, allowing for faster payments.
We’ve all seen it before in construction draws: They’re a completely disorganized mess of documents scanned and slapped together in a giant PDF and delivered fresh to your inbox ready to be sorted, sifted through, and made sense of. Sometimes they include way too many documents. Sometimes way too few. Sometimes way too many of the documents you don’t need and none of the documents you actually do need.
On top of being an inefficient pain to try to review and understand, non-standardized draws like those described above can also be incredibly risky for those who are tasked with funding them. Because, what if something is hiding in this pile of PDFs that you missed? Or that was (un)intentionally left out? There’s got to be a better way to share budget progress in a draw.
Lenders and Developers should come together on what makes for a clear and concise Draw Summary format, one that shares all the necessary information, provides all the necessary documentation, and keeps everyone on the same page regarding changes to the budget, funding sources, and overall budget progress. Creating more transparency across developer and lender parties cuts down on funding delays resulting in faster payments and reduces risk to the funding process.
What to include in a Draw Summary
We start with the Draw Summary sheet. Known as many things (Draw Tracker sheet, Budget tracker sheet, Balancing sheet, etc.), the Draw Summary sheet is basically just a standardized spreadsheet that a borrower provides a lender in the draw request that includes the following items:
Original Budget, including all of the originally agreed upon line items as they were originally laid out
Current Budget, including any changes to the original budget with any new line items clearly shown
Draw-by draw history of amounts requested
Retainage (if tracking)
Any Budget changes, this would include as mentioned above, any new line items added since the original budget as well as any adjustments or re-allocations between budgeted amounts
Amount requested to date or amount completed to date
Funding source tracking, to make sure that equity and debt sources are aligned with all parties
A borrower submits this Draw Summary spreadsheet to the lender, along with some other necessary documentation such as an invoice summary sheet detailing the included list of invoices and pay applications and which line item in the budget they link to and any lien waivers or other documentation required by the lender, such as change orders.
Benefits of a Draw Summary
A lender, upon receiving this Draw Summary spreadsheet, now can go to work reviewing the request along with the included supporting documentation, seeing any changes to the budget and if they approve of these, and upon inspection determine if the amounts completed are accurate. The Draw Summary sheet allows the lender to quickly see where all of the supporting documentation adds up in the budget, or where it doesn’t add up and more supporting invoices or pay applications are needed to complete the request. This helps the reviewer more quickly determine which supporting documents are relevant and which are not, so that only the necessary supporting documents can be reviewed and tied to the budget.
The included Draw Summary sheet also allows the lender to run a quick comparison between the current Draw spreadsheet and the previous to analyze if any changes have been made to the budget that haven’t been properly documented or accounted for in the documentation. Consider using digital platforms or project management software to streamline communication of the budget, standardize the process across a portfolio, and more easily store and share documents. This allows stakeholders to access real-time updates and track progress more efficiently.
The Draw Summary sheet should also include, ideally in a separate tab on the spreadsheet, how the borrower is tracking the funding sources and disbursements from draw to draw. This allows a lender to quickly see if this is being tracked properly, especially if there are more complicated funding scenarios with multiple debt and/or equity sources, so that everyone stays aligned and on the same page throughout the funding process.
Additional Information
As mentioned above, digital platforms can be a tremendous help to standardizing processes and reducing risks that manual entry and human error present. For further reading on how this process works in a digital platform, check out the Rabbet articles below on uploading and using Draw Summaries to create or review draws:
In conclusion, tracking and communicating draw requests through a Draw Summary is a vital part of maintaining efficiency and transparency throughout the life of a project/loan. Not using a draw summary leaves the draw review and approval process up to some guesswork, causes documentation and amounts to be missed, reduces trust between parties, and overall can delay the disbursement of funds. Implementing this standard draw communication practice within your draw process is a necessary step toward a world with greater clarity and faster payments in construction loan management.
Do you have questions or feedback? Please email us at help@rabbet.com